Barnes & Noble Backed by U.S. Agency Staff in Microsoft Case

By Susan Decker -
Feb 6, 2012

Barnes & Noble Inc. should win a
patent-infringement case brought by Microsoft Corp. (MSFT) that
threatens to halt imports of the bookseller’s Nook e-reader,
according to staff of the U.S. trade agency hearing the dispute.

Jeff Hsu, a staff attorney at the U.S. International Trade
Commission, said today in an interview he is recommending that
ITC Judge Theodore Essex find there was no violation by Barnes &
Noble of three Microsoft patents. The recommendation came in a
trial beginning today in Washington.

Essex is scheduled to release his findings April 27, and a
decision in Microsoft’s favor could lead to a ban on imports of
Nook readers made outside the U.S. The staff acts as a third
party in the case, and there’s no requirement that the judge
follow the recommendation.

The case is part of a strategy by Redmond, Washington-based
Microsoft to push Barnes & Noble into paying patent royalties
for the Nook, which runs on Google Inc. (GOOG)’s Android operating
system. Microsoft claims all Android devices use its technology
and has said it collects fees on 70 percent of Android
smartphones in the U.S.

Microsoft, the world’s largest software maker, said the
staff’s recommendation was made before the presentation of
evidence, and it may change after the trial, according to an e-
mailed statement.

Barnes & Noble, based in New York, denies infringing the
patents, and contends they are invalid because they don’t cover
new inventions. The three patents apply to a way to select text
to make it larger or smaller; a way to put highlights or
footnotes on copyrighted documents; and faster downloading of
text from Web pages that have background images.

‘Exorbitant’ Fees

Barnes & Noble has refused to pay Microsoft and complained
to the government about its adversary’s tactics. Microsoft
“uses these patents to demand that every manufacturer of an
Android-based mobile device take a license from Microsoft and
pay exorbitant licensing fees,” Barnes & Noble said in a trade
commission filing.

Essex has thrown out the patent misuse claim, leaving only
the question of whether the patents are valid and have been
infringed.

The bookstore chain is banking on the Nook as consumers
turn from traditional publishing. Sales of Nook devices surged
70 percent during the holiday-shopping period, and revenue in
the Nook division may total $1.5 billion in the fiscal year
ending April 30, the company said Jan. 5.

The trade agency has the power to block imports of products
that infringe U.S. patents. The Nook is made in Asia, and
Microsoft is counting on the threat of the reader being stopped
at the border to force Barnes & Noble into a licensing deal.

Amazon.com Agreement

Barnes & Noble said Microsoft first approached it two years
ago about an agreement, and in meetings and e-mail exchanges
that began in July 2010, Microsoft contended that its patents
had the power to block Android devices. The bookseller said in
an ITC filing that Microsoft was demanding “shockingly high
licensing fees” and requirements that would have limited Barnes
& Noble’s ability to upgrade its Nook devices.

“The Android-based Nook devices infringe Microsoft
patents,” Microsoft said in its statement. “Barnes & Noble has
refused to license Microsoft’s intellectual property on
commercially acceptable terms, a decision which has left us with
no choice but to file this action in the ITC.”

Amazon.com Inc., whose Kindle reader is the Nook’s top
competitor, has a license with Microsoft for at least one of the
patents in the case, Microsoft said in its March 2011 complaint.
That filing occurred before Seattle-based Amazon.com introduced
its Kindle Fire, which also runs on a version of Android.

The case is In the Matter of Certain Handheld Electronic
Computing Devices, 337-769, U.S. International Trade Commission
(Washington).